Published Friday, October 8, 2004, in Investors Business Daily

Queasy About The Economy?: May Be Headlines You Read

By Kevin A. Hassett and John R. Lott, Jr.

Economists have been puzzled this year by the persistence with which perceptions about the economy have lagged the economic data.

For the most recent twelve-month period for which we have data, for example, the economy grew almost exactly as fast as it did during the best twelve-month period during President Clinton's two terms.

But the economic mood of the country has been much different.

This is hardly the first such gap between economic reality and people's perceptions has puzzled economists.

Lynn Reaser, chairwoman of the American Bankers Association's Economic Advisory Committee, recently noted: "In 1992, there was a gap between reality and perception - the economy was actually relatively healthy, but the public perception was that it was much weaker, and that seems to be the situation presently."

Yet, it not just the economy that influences people's perceptions. In new research we just released, we find that media coverage is an important determinant as well.

We found that newspaper headlines reporting economic news on unemployment, GDP, retail sales and durable goods tended to be much more frequently negative when a Republican was in the White House. And this was true even after accounting for the economic numbers upon which the stories were based and how those numbers were changing over time.

We also found that more positive headlines explained whether people thought that the economy was getting better more than the economic variables themselves. Newspapers are indeed important.

There have, of course, been numerous anecdotal claims of media bias. These are unsatisfactory, since it would be relatively easy to cherry pick negative examples from the most unbiased of sources and individual quotes can always be interpreted in different ways.

What has been lacking has been a rigorous scientific study of media bias, and our new paper is an attempt to provide just that.

By limiting ourselves to the news coverage of economic data, it is possible to get an objective measure of the news behind the stories. Our research team first collected a list of days that important economic news was released for most papers since 1991 and for four major papers and the Associated Press since 1985.

We then used Nexis, a computer database of news stories that contains information on 389 newspapers, to gather up all of the 12,620 headlines that ran in America's newspapers covering these economic news announcements.

We excluded follow-up and feature stories that occurred at different dates because we wanted to be able to link the headlines directly with the numbers upon which they were based.

Headlines are relatively easy to classify since they say things are getting better or worse or mixed (containing both good and bad news). For example, on January 31st, 2004, the government reported that the real GDP grew 4 percent in the fourth quarter of 2003. The New York Times covered this, appropriately, as good news, writing the headline, "Economy remained strong in 4th quarter, US reports."

At the same time, Chicago Tribune wrote that, "GDP growth disappoints; job worries linger," a negative headline. Many times newspaper headlines are so divergent it is hard to believe that they are referring to the same country.

The actual economic data on the economy (both the levels and trends) explains a lot of how many headlines are positive. But the economic data does not explain everything.

While there was usually no statistical difference in the incidence of positive coverage of economic news between the Republican presidencies, economic news under President Clinton received by far the most positive coverage.

This partisan gap or bias (the difference in positive headlines between Republicans and Democrats for the same underlying economic news) consistently implied that Democrats got between 10 and 20 percentage points more positive headlines.

We also examined how the percent of positive headlines varied with the economic news by individual newspaper.

Among the top 10 papers, we found strong evidence of the Associated Press, the Chicago Tribune, the New York Times, and the Washington Post being much more likely to have positive headlines for Democrats even with the same economic news.

There was also something of a "home town effect" to coverage.

The Los Angeles Times during the Reagan administration and the Houston Chronicle during either of the Bush Presidencies were the only two large newspapers that exhibited any tendency towards Republicans (though the effect was not significant for the Chronicle).

On average, the Los Angeles Times did not treat Republicans and Democrats differently, though they had few positive headlines for either Bush administration.

Even including the LA Times along with the Chicago Tribune, New York Times, Washington Post and Associated Press (the papers we had headlines back to 1985), Reagan still received seven percentage points fewer positive news stories than Clinton after accounting for the different economic conditions.

The latest Gallup poll released on Thursday finds 48 percent of people think that the media is too liberal while only 15 percent think that they are too conservative. Our results provide a first attempt at measuring whether those perceptions are correct.

What motivates newspapers and their copy editors to pick the headlines that they do is not a question that we tried to answer. Whether these motivations are conscious or not, this partisan gap exists and it helps explain one of this year's biggest economic puzzles.

Unfortunately, the recent charges of political bias at CBS may only be a small part of the problem with the news.

Kevin A. Hassett is director of economic policy studies at the American Enterprise Institute. John R. Lott Jr. is a resident scholar at the American Enterprise Institute. Contact Kevin A. Hasset at khasset@aei.org. Contact John. R. Lott Jr. at jlott@aei.org. The study is available at here.

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